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Counterparty Risk Increases
When banks lend or take on other forms of exposure to each other, they gauge the counterparty risk. In recent weeks, there has been a widespread withdrawal of confidence in counterparties that has resulted in efforts to reduce exposure.
…
Dennis P. Lockhart, President and Chief Executive Officer Federal Reserve Bank of Atlanta, Sep. 30, 2008
Whatever the best way to regain confidence in counterparties may be, this isn’t it:
Under pressure from banks and legislators, the Securities and Exchange Commission issued an interpretation
of an accounting standard that could make it easier for banks to report
smaller losses, or perhaps even profits, when they announce results for
the third quarter, which ended Tuesday.
Now nobody will trust the Q3 results of any bank. Counterparty risk will be perceived as higher than before. The interbank credit market will freeze further.
It starts to feel like there is an intend to make the outcome as bad as possible.
Here’s what Warren Buffett got for “his” $8B:
Two of the top capitalized blue-chip firms in the US. PERPETUAL PREFERRED SHARES of Goldman Sachs!
That means Buffett goes out at the top, anytime he wants to exercise, he’s first in line before shareholders!
He bought at the absolute bottom, right before he bet Congress would quadruple his investment last Monday.
From GE, Buffett gets $3 billion of preferred stock in a private offering. The stock pays a dividend of 10 percent,
and G.E. can purchase the shares back from Mr. Buffett after three years by paying a 10 percent premium,
or $3.3 billion. <-- e.g. Buffett risked nothing! He automatically gets 110% return on his $3 B investment!
But the real payoff for Mr. Buffett will come if G.E.’s battered stock rebounds. As part of the financing,
Berkshire Hathaway is receiving warrants to purchase $3 billion of G.E. common stock for $22.25 a share,
at any time over the next five years. In regular trading, G.E. shares closed down $1 a share on
Wednesday, at $24.50 a share. <-- e.g. Buffett automatically wired in another 10% return on his investment,
and with our taxpayer bailout of GE Capital, probably 100% on both GE and GS.
--
Now what do US taxpayers get?
We will have the "right", although no Treasury administrator will exercise it, to receive common shares of
junk-status financing companies, after we pay somewhere north of 62¢ on the $1 for their junk-status assets
valued somewhere between 30¢, to as low as 3¢. <-- Automatically Paulson has wired in a -50% loss for US!
In all likelikhood, no shares will be offered, and none requested. We'll be sitting on a steaming pile of shit,
that we just lost anywhere from -50% to -95% on, not counting -50% more in administrative and origination fees,
transfer taxes, refinancing, oh yeah, you bought it, you keep paying property taxes on it and carrying costs,
home owner's association dues including back dues, yeah, you've really bought some choice assets!!
Those property's will rot in the sun and blizzard, un-airconditioned, unheated, waiting for buyers who can
never qualify, leaking, festering, filled with black mold, and oh, yes, you as the taxpayer will pay for the
remediation too, even if it costs more than the value of the asset, up to whatever Paulson paid for it!!
And we'll pay China an automatically guaranteed 30% interest rate on the money Paulson is mismanaging.
We are looking at, at MINIMUM, an -80% immediate loss in value of our investment! Even during the Great
Depression, stocks didn't drop -80%. This is the first Congressional Act in US history creating a Depression!
?Stock warrants good for five years, at a price lower than today's closing? Are you smoking meth again?
That's for the fat cats we're bailing out. They'll get their rocks off, and we'll get our spotted blue dress.
And maybe a cigar if we smile nice, and you know, go down slow.
Posted by: Cher Izad | Oct 2 2008 3:47 utc | 29
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